Best Buy 2012 Annual Report Download - page 57

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Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions
Tax Contingencies
Our income tax returns, like those of most
companies, are periodically audited by
domestic and foreign tax authorities. These
audits include questions regarding our tax
filing positions, including the timing and
amount of deductions and the allocation of
income among various tax jurisdictions. At
any one time, multiple tax years are subject to
audit by the various tax authorities. In
evaluating the exposures associated with our
various tax filing positions, we record a
liability for such exposures. A number of years
may elapse before a particular matter, for
which we have established a liability, is
audited and fully resolved or clarified. We
adjust our liability for unrecognized tax
benefits and income tax provision in the
period in which an uncertain tax position is
effectively settled, the statute of limitations
expires for the relevant taxing authority to
examine the tax position or when more
information becomes available.
Our liability for unrecognized tax benefits
contains uncertainties because management is
required to make assumptions and to apply
judgment to estimate the exposures associated
with our various filing positions.
Our effective income tax rate is also affected
by changes in tax law, the tax jurisdiction of
new stores or business ventures, the level of
earnings and the results of tax audits.
Although we believe that the judgments and estimates
discussed herein are reasonable, actual results could
differ, and we may be exposed to losses or gains that
could be material.
To the extent we prevail in matters for which a liability
has been established, or are required to pay amounts in
excess of our established liability, our effective income
tax rate in a given financial statement period could be
materially affected. An unfavorable tax settlement
generally would require use of our cash and may result in
an increase in our effective income tax rate in the period
of resolution. A favorable tax settlement would be
recognized as a reduction in our effective income tax rate
in the period of resolution.
Revenue Recognition
See Note 1, Summary of Significant
Accounting Policies, to the Notes to
Consolidated Financial Statements, included
in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on
Form 10-K, for a complete discussion of our
revenue recognition policies.
We recognize revenue, net of estimated
returns, at the time the customer takes
possession of the merchandise or receives
services. We estimate the liability for sales
returns based on our historical return levels.
We record an allowance for doubtful accounts
receivable for amounts due from third parties
that we do not expect to collect. We estimate
the allowance based on historical write offs
and chargebacks as well as aging trends.
We sell gift cards to customers in our retail
stores, through our Web sites and through
selected third parties. A liability is initially
established for the cash value of the gift card.
We recognize revenue from gift cards when:
(i) the card is redeemed by the customer; or
(ii) the likelihood of the gift card being
redeemed by the customer is remote (“gift
card breakage”). We determine our gift card
breakage rate based upon historical
redemption patterns, which show that after
24 months, we can determine the portion of
the liability for which redemption is remote.
We have customer loyalty programs which
allow members to earn points for each
purchase completed at any of our Best Buy
branded stores, or through our related Web
sites or when using our co-branded credit
cards in the U.S. and Canada. Points earned
enable members to receive a certificate that
may be redeemed on future purchases at
Best Buy branded stores and Web sites. The
value of points earned by our loyalty program
members is included in accrued liabilities and
recorded as a reduction in revenue at the time
the points are earned, based on the value of
points that are projected to be redeemed.
Our revenue recognition accounting
methodology contains uncertainties because it
requires management to make assumptions
and to apply judgment to estimate the amount
and timing of future sales returns,
uncollectible accounts and redemptions of gift
cards and certificates. Our estimate of the
amount and timing of sales returns,
uncollectible accounts and redemptions of gift
cards and certificates is based primarily on
historical transaction experience.
We have not made any material changes in the
accounting methodology we use to measure sales returns
or doubtful accounts or to recognize revenue for our gift
card and customer loyalty programs during the past three
fiscal years. We do not believe there is a reasonable
likelihood that there will be a material change in the
future estimates or assumptions we use to measure sales
returns and doubtful accounts or to recognize revenue for
our gift card and customer loyalty programs. However, if
actual results are not consistent with our estimates or
assumptions, we may be exposed to losses or gains that
could be material.
A 10% change in our sales return reserve at March 3,
2012, would have affected net earnings by approximately
$1 million in fiscal 2012.
A 10% change in our allowance for doubtful accounts
receivable at March 3, 2012, would have affected net
earnings by approximately $5 million in fiscal 2012.
A 10% change in our gift card breakage rate at March 3,
2012, would have affected net earnings by approximately
$17 million in fiscal 2012.
A 10% change in our customer loyalty program liability
at March 3, 2012, would have affected net earnings by
approximately $7 million in fiscal 2012.